AASB seeks feedback on its proposals for simplified accounting requirements for Tier 3 not-for-profit private sector entities

Many stakeholders consider the Australian reporting requirements for private sector not-for-profit entities (NFPs) to be overly complex, and have called for a move to simplified accounting, or a ‘Tier 3’ financial reporting framework for smaller NFPs.

As a result, on 27 September 2022, the Australian Accounting Standards Board (AASB) published its Discussion Paper, Development of Simplified Accounting Requirements (Tier 3 Not-for-Profit Private Sector Entities), and is seeking feedback by 31 March 2023. The Discussion Paper contains the AASB’s preliminary views on how a Tier 3 framework might work, including for recognition and measurement, as well as disclosures.

How will the Tier 3 reporting requirements be set out?

The Discussion Paper proposes that Tier 3 reporting requirements will be set out in a single stand-alone standard, which will specify the accounting requirements for transactions common to smaller NFPs. The requirements will be expressed in a manner that is easy to understand (plain English) and will include guidance and financial statement templates.

Which NFPs will Tier 3 simplified accounting apply to?

The Discussion Paper does not seek to specify which NFPs will apply a Tier 3 reporting framework. Instead, this will be left to individual NFP regulators to decide which ‘Tier’ of reporting is appropriate. Nevertheless, when developing its preliminary views set out in the Discussion Paper, the AASB considered NFPs with revenues between $500,000 and $3 million. This threshold aligns with medium-sized Australian Charities and Not-for-profits Commission (ACNC) charities.

Will special purpose financial statements still be permitted for Tier 3 NFPs?

The Discussion Paper is considering removing the ability of NFPs to prepare special purpose financial statements. This would result in some NFPs having to include more disclosures in their financial statements, and also comply with the recognition and measurement requirements specified for Tier 3 entities.

Will Tier 3 requirements cover all financial statement areas?

No. The Discussion Paper proposes that the accounting requirements for the following financial statement areas are not covered in a Tier 3 financial reporting framework for private sector NFPs:

  • Biological and agricultural assets
  • Insurance contracts
  • Exploration for and evaluation of mineral resources
  • Business combinations
  • Obligations arising under defined benefit superannuation plans
  • Share-based payments
  • Accounting by an operator in a service concession arrangement
  • Complex financial instruments.

If encountering these transactions, NFPs applying Tier 3 requirements would firstly apply the recognition and measurement requirements specified for Tier 2 entities applying Australian Accounting Standards (Simplified Disclosures). In the absence of Tier 2 requirements, Tier 3 entities would need to apply judgement to develop an accounting policy by reference to, in descending order:

  • Tier 3 reporting requirements dealing with similar and related issues
  • Definitions, recognition criteria and measurement concepts contained in the Australian Conceptual Framework.

A similar process would apply for other transactions and events not covered in the Tier 3 financial reporting requirements.

Can Tier 3 entities opt to apply Tier 1 or Tier 2 financial reporting requirements?

Tier 3 entities will be able to ‘opt-up’ to Tier 1 or Tier 2 reporting in their entirety. This means that instead of presenting a Tier 3 financial report, a smaller NFP may choose to present either:

  • Full general purpose financial statements in accordance with all Australian Accounting Standards
  • General purpose financial statements (Simplified Disclosures) in accordance with AASB 1060.

The AASB is seeking feedback whether Tier 3 entities should have a choice to ‘opt-up’ to Tier 1 or Tier 2 on a policy-by-policy basis.

More information

The AASB’s Hot topics page contains the following resources to accompany the Discussion Paper:

  • 12-page snapshot overview of the Discussion Paper
  • Recorded 53-minute session covering the proposed Tier 3 accounting and disclosure requirements. You can watch the recording or download the slide presentation
  • Updated Research Report 10 Legislative and Regulatory Financial Reporting Requirements to help identify the entities with financial reporting obligations under Federal and State/Territory requirements that may be affected by the Board's Proposals.

Have your say

The AASB are encouraging all NFP stakeholders to get involved in this project by doing one or all of the following: